Correlation Between MicroSectors FANG and ProShares VIX

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and ProShares VIX at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining MicroSectors FANG and ProShares VIX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG Index and ProShares VIX Short Term, you can compare the effects of market volatilities on MicroSectors FANG and ProShares VIX and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in MicroSectors FANG with a short position of ProShares VIX. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and ProShares VIX.

Diversification Opportunities for MicroSectors FANG and ProShares VIX

-0.2

Correlation Coefficient

MicroSectors FANG  ProShares VIX

Good diversification

The 3 months correlation between MicroSectors and ProShares is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and ProShares VIX Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares VIX Short and MicroSectors FANG is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on MicroSectors FANG Index are associated (or correlated) with ProShares VIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares VIX Short has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and ProShares VIX go up and down completely randomly.

Pair Corralation between MicroSectors FANG and ProShares VIX

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the ProShares VIX. In addition to that, MicroSectors FANG is 1.43 times more volatile than ProShares VIX Short Term. It trades about -0.15 of its total potential returns per unit of risk. ProShares VIX Short Term is currently generating about 0.16 per unit of volatility. If you would invest  4,421  in ProShares VIX Short Term on December 5, 2024 and sell it today you would earn a total of  424.00  from holding ProShares VIX Short Term or generate 9.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

MicroSectors FANG Index  vs.  ProShares VIX Short Term

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares VIX Short

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares VIX Short Term are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, ProShares VIX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and ProShares VIX

The main advantage of trading using opposite MicroSectors FANG and ProShares VIX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, ProShares VIX can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ProShares VIX will offset losses from the drop in ProShares VIX's long position.

The idea behind MicroSectors FANG Index and ProShares VIX Short Term pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.